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GENERAL INDUSTRY BACKGROUND
The Indian insurance industry, valued at ~US$ 108 billion, is considered the eleventh in the global insurance business, according to the Annual Report of the IRDAI.1 The size of the Indian life insurance industry was INR 6.2 trillion on a total-premium basis in FY 2020-21, up from INR 5.7 trillion in FY 2019-20.2 The insurance industry in India can be mainly classified into (i) Life Insurance & (ii) Non-life Insurance.
In India, the insurance sector operates under the aegis of the Ministry of Finance and is regulated by the Insurance Regulatory and Development Authority ("IRDA"). The insurance sector plays a critical role in country's economic development. It acts as a mobilizer of savings, a financial intermediary, a promoter of investment activities, a stabilizer of financial markets and a risk manager.
Indian insurance sector is open to private participation from foreign players as well under the Foreign Direct Investment ("FDI") regime promoted by the Department for Promotion of Industry and Internal Trade (DPIIT). In line with the Indian Government’s larger objective of progressive liberalisation of various sectors to FDI, the threshold for FDI (under a non-approval route) in India’s Insurance companies was eased up to 74% in June 2021, from the prevailing threshold of 49% FDI which was existing from 2015. FDI in excess of the 74% threshold is permitted only subject to approval of the concerned ministry/department of the Government of India.
Insurance penetration in India increased from 3.76% in 2019-20 to 4.20% in 2020-21, registering a growth of 11.70%. The share of life insurance business for India was at 75.24% while the share of non-life insurance business was at 24.76%. While FY 2020-21 and part of FY 2021-22 was majorly focussed on the pandemic, the Indian insurance industry is expected to focus more on the growth story going forward. Increased awareness levels, enabling digitalised payments infrastructure, advent of ecosystems, big data, journey simplification and overall digital enablement will be some broad items which will drive the growth story.3 Premiums from India’s life insurance industry alone is expected to reach ~ US$ 318 billion by FY 2030-31.4
In India, at present, insurance industry of India has 58 insurance companies - 24 are in the life insurance business, while 34 are non-life insurers (25 general insurers, 7 standalone health, 2 specialized insurers).5 The market share of private sector companies in the general and health insurance space increased from 48.03% in FY 2019-20 to 49.31% in FY 2020-21.6
IMPORTANT TRENDS IN THE INDUSTRY
- Prior to 2015, the FDI permitted in Insurance companies was upto 26%.
- From 2015, the FDI in the Insurance companies was increased from 26% to 49%.
- From June 2021 onwards, the FDI in the Insurance companies was increased to 74%.
- FDI in Insurance Intermediaries (including insurance brokers, re-insurance brokers) is allowed upto 100% under non-approval route.
- Emergence of Insurtech: Some insurers are funding technology incubators. Swiss Re, for instance, has set up an insurtech accelerator in Bangalore, India, to help start-ups develop products and services.7 Currently, there are 110+ InsurTech start-ups operating in India.8
MAJOR PLAYERS IN INDIA
Leading Indian companies
- Life Insurance
- Life Insurance Corporation of India, Birla Sun Life Insurance Co. Ltd, ICICI Prudential Life Insurance Co. Ltd, Max Life Insurance Co. Ltd, Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd., ING Vysya Life Insurance Company Ltd., HDFC Standard Life Insurance Co. Ltd.9
- Non-Life Insurance
- Bajaj Allianz General Insurance Co. Ltd., ICICI Lombard General Insurance Co. Ltd., National Insurance Co. Ltd., The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd., United India Insurance Co. Ltd., Tata AIG General Insurance Co. Ltd., Export Credit Guarantee Corporation of India Ltd., Reliance General Insurance Co. Ltd., SBI General Insurance Company Limited, Religare Health Insurance Company Limited, Star Health and Allied Insurance Company Limited.10
Leading MNC Companies in India
- IFFCO Tokio General Insurance Co. Ltd., Edelweiss Tokio Life Insurance Co. Ltd., Future Generali India Insurance Company Limited, Raheja QBE General Insurance Company Limited, Universal Sompo General Insurance Co. Ltd., Bharti AXA General Insurance Company Limited, Max Bupa Health Insurance Company Ltd, Go Digit General Insurance Limited.
Important industry associations
- Insurance Association of India, Insurance Corporation Employees Union (India) (ICEU), Insurance Brokers Association of India (IBAI), Actuarial Society of India (ASI), Indian Institute of Insurance Surveyors and Loss Assessors (IIISLA), National Insurance Company Officers' Association (NICOA), Eastern Zone Insurance Employees' Association (EZIEA), General Insurance Employees' Union, India InsurTech Association.
IMPORTANT LAWS AFFECTING THE INDUSTRY
Insurance Act, 1938
- The basic law relating to insurance which consolidates the law relating to business of insurance.
- Prescribes the procedures and requirements to comply with by insurance companies while doing the business of insurance and re-insurance.
- Prescribes provisions relating to insurance associations, councils and committees.
- Prescribes provisions relating to licensing and payment of commission to insurance agents.
Insurance Regulatory and Development Authority (IRDA) Act, 1999 and Rules & Regulations thereunder
- Appointment of the insurance sector regulator – "IRDA" to set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates.
- Provisions relating to protection of the interest of and secure fair treatment to policyholders.
- Provisions for taking action where such standards are inadequate or ineffectively enforced.
- Code of conduct for insurance intermediaries.
The Motor Vehicles Act, 1988
- Prescribes provisions relating to third party insurances to be obtained by the owners of motor vehicles.
- Prescribes the duties of the insurers towards third parties in cases of accidents.
The Insurance Rules, 1939
- Provides for licensing of various intermediaries and appointment of various committees.
- Provisions relating to compliances to be observed by insurance companies while operating insurance business. .
The Redressal of Public Grievances Rules, 1998
- Provides for constitution of grievance redressal machinery for the redressal of grievances of policyholders against the insurance companies.
- States the procedure for the redressal of grievances.
The General Insurance Business (Nationalisation) Act, 1972
- Nationalized the general insurance business in India.
- 107 insurers were amalgamated and grouped into four companies which were owned by the Government.
Insurance Laws (Amendment) Act, 2015
- Permission to issue preference shares or debentures which do not carry voting rights
- Foreign reinsurers permitted to operate out of wholly-owned branch offices
IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations, 2015
- Acquisition of shares of an insurance company in excess of 5% of its share capital requires prior approval from the IRDAI.
IRDAI (Investment by Private Equity Funds in Indian Insurance Companies) Guidelines, 2017
- Permitted direct investment in an insurance company as an investor (and not as a promoter)
- Permitted indirect investment in an insurance company through a SPV (either as a promoter or an investor).
IRDAI (Insurance Web Aggregators) Regulations, 2017
- Notified eligibility criteria and regulation of the web aggregators in the Insurance space
Insurance Regulatory and Development Authority (IRDA)
- Established under the Insurance Regulatory and Development Authority Act, 1999.
- Responsible for- regulating the insurance companies and insurance intermediaries operating in India by prescribing code of conduct; protection of the interest of and secure fair treatment to policyholders; set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates.
- Arm of Ministry of Finance.
The Indian Insurance Industry has grown steadily in the past decade. Insurance companies, owing to high competition in the relevant market, are focusing on higher satisfaction of the policyholders. This has improved the quality of service of the insurers. The Indian insurance industry has also been able to attract high FDI. However, there are still some serious issues which plague this sector. One of them is the low penetration of the insurance services in India – though some may choose to see this as opportunities for investing in India.
Attempts are being made by the Government to address various issues and focus on the Insurance Sector which can be witnessed by the increase in the FDI limit to 74% and also the listing of india’s biggest insurer – the Life Insurance Corporation in May 2022. This shall ensure greater capital flow in the Indian insurance sector.
2 Report by CRISIL titled “Analysis of Life Insurance Industry in India and Certain other Countries” dated March, 2022 prepared and issued by CRISIL, which was exclusively commissioned by LIC in connection with its IPO and as referred to Prospectus of LIC.